Zensho : Corporate Governance Report 20220624

Corporate Governance Report

Last Update: June 24, 2022

Zensho Holdings Co., Ltd.

Kentaro Ogawa Representative Director, Chairman, President & CEO Contact: Group General Affairs Division; [phone] Securities Code: 7550 https://www.zensho.co.jp/en/

The corporate governance of Zensho Holdings Co., Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views Updated

The Company's mission is "providing safe and delicious food at affordable prices to people throughout the world." To this end, we operate an excellent global Mass Merchandising System (MMD) developed in-house, in which we plan and design the entire process involving food to take full responsibility for our food safety and quality with a consumer-first mindset. Company members who share this mission make up and maintain our organic and effective organization.

On the business administration front, four out of ten Directors (excluding Directors who are Members of the Audit & Supervisory Committee), as well as three out of four Directors who are Members of the Audit & Supervisory Committee, are Outside Directors, with a view to establishing a fair governance structure. Furthermore, in line with its basic policy on establishment of internal control systems, the Company has developed systems for ensuring legal compliance and managing risks, and is making use of internal checks by the internal audit division and accounting audits by the Accounting Auditor to further enhance its corporate governance.

Moreover, the Company endeavors to increase transparency of business management through results briefings, investor relations (IR) activities, disclosures through the corporate website and other means, and direct engagement with shareholders at General Meetings of Shareholders.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated

[Supplementary Principle 3.1.3 Disclosure of impacts of climate change on the Company based on the TCFD recommendations or an equivalent framework]

• The Company will collect and analyze information related to impacts of climate change on its business activities and profits, to be disclosed in the future.

[Supplementary Principle 4.1.3 Roles and responsibilities of the Board of Directors (1)]

• Successors for the CEO and other top executives will be selected from among candidates who are deemed the most suited in consideration of factors including their character, knowledge, track record, and understanding of the Company's business philosophy, upon providing frequent job rotations and trainings for development. The Board of Directors will supervise the development and selection process.
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[Disclosure Based on the Principles of the Corporate Governance Code] Updated

[Principle 1.4 Cross-shareholdings]

• The Company currently does not hold cross-shareholdings. When holding cross-shareholdings, the Company assesses whether to do so on an individual basis by deliberating from the perspective of ensuring the holding purpose is in line with the Company's business strategies and medium- to long- term economic rationale. Moreover, the Company will endeavor to disclose its policies on reduction of cross-shareholdings and standards on exercise of voting rights.

[Principle 1.7 Related party transactions]

• When the Group intends to engage in a transaction with a related party, such as its officer or major shareholder, the Group submits a proposal on the transaction to the Board of Directors in advance and obtains its approval pursuant to the Board of Directors Regulations, in order to ensure such transactions do not hinder interests of the Group or common interests of shareholders. The Group also verifies results of these transactions to confirm they were carried out under terms equivalent to general transactions in light of fair values and market prices.

[Supplementary Principle 2.4.1 Ensuring diversity, including active participation of women]

• The Company has long envisioned to be "an energetic organization that values diversity, initiative, and creativity, in which each and every individual can work with vigor," as stipulated in the "Zensho Group Charter," which prescribes code of conduct for its employees. Having developed human resource and organizations to achieve this vision, the Company promotes employees to managerial positions while considering diversity in gender, nationality, professional background, etc. In addition, the Company strives to create an internal environment that facilitates active participation of diverse human resource, by setting up childcare facilities at its offices, creating childcare leave and other systems, and providing internal training on diversity.
  At Zensho Holdings Co., Ltd., female employees accounted for 25.2% of all employees as of March 31, 2022, with 13.6% of employees in managerial positions being women and one female Director in office. Foreign nationals and mid-career hires comprise 1.7% and 48.3% of employees in managerial positions, respectively. The Company will continue striving to improve these ratios.

[Principle 2.6 Roles of corporate pension funds as asset owners]

• The Company employs a defined contribution plan, and therefore does not manage corporate pension funds on its own or outsource the management to external institutions.

[Principle 3.1 Full disclosure]

1. Management vision, business strategies, management plans

• The Group, under the business philosophy "to eradicate hunger and poverty from the world," endeavors to fulfill its mission of "providing safe and delicious food at affordable prices to people throughout the
  world." On the sustainability front, the Company strives to curb CO2 emissions by installing solar power generation equipment, creating stores with smaller environmental footprint, and reducing energy consumption with facility upgrades. It also helps developing countries promote agriculture and provides support for producers by facilitating fair trade.
• The Company prepares and discloses medium-term management plans.

1. Basic policy on corporate governance

• The Company has established its "Basic Policy on Corporate Governance," which is disclosed on its website (https://www.zensho.co.jp/jp/company/governance/).

1. Compensation for Directors

• The Company has established its Policy for Determining Content of Individual Compensation, etc., for Directors, determined by the Board of Directors based on reports from the Nomination and Compensation Committee. This policy is disclosed in Annual Securities Reports and Notices of Ordinary General Meeting of Shareholders.

1. Appointment, dismissal, and nomination

• The Company has set up a Nomination and Compensation Committee as an advisory body to the Board of Directors, with a view to enhancing transparency and objectivity of the nomination process for Director candidates and candidates for Directors who are Members of the Audit & Supervisory Committee. Based on recommendations of the Nomination and Compensation Committee, the Board of

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Directors holds discussions and selects candidates (Executive Officers are determined by the Board of Directors).

• In case of grounds for dismissal of a member of the senior management, such as causing significant damage to the Company or executing their duties inappropriately, the Board of Directors will hold discussions and take measures in accordance with internal procedures.

1. Explanation on individual appointment, dismissal, and nomination

• Based on reports of the Nomination and Compensation Committee, a Director in charge provides explanations on individual appointment, dismissal, and nomination.

[Supplementary Principle 3.1.3 Sustainability initiatives]

• The Company operates its business under the management vision to "eradicate hunger and poverty from the world," a longstanding commitment since its establishment. As such, it regards medium- to long- term sustainability as a key management priority. As part of its sustainability initiatives, the Company has provided agriculture-related technical assistance to developing countries, helped with building educational institutions, waterworks and sewage systems, and medical facilities, and offered support for female producers through fair trade in coffee, tea, and other products since 2007. The Company now conducts fair trade programs in 18 countries, details of which are disclosed on the Company's website. The Group also engages in environmental conservation such as by installing solar power generation
  equipment at Hama-Sushi stores and factories, curbing CO2 emissions through energy consumption cuts with development of stores with smaller environmental footprint and facility upgrades, and conserving eel (aquaculture resource) through the Eel Foundation. These efforts were endorsed by an institution that assesses ESG financing, and the Company issued sustainability bonds in June 2022.
  As for investment in human capital, the Company works to secure sufficient budget for training and maintain a competitive level of compensation, based on the basic policy to develop competent human resource such as by operating training and qualification systems for each professional field, strategically reassigning employees, and facilitating self-improvements. The Company has also established the Zensho Research Institute, an internal think tank, as well as the Japan Cultural Training Center, a training facility for managers, to enhance the overall culture and knowledge of employees.
  As for investment in intellectual property, the Company has set up an in-house research division, the Central Institute for Science and Technology, to advance technological development and basic research based on medium- to long-term business strategies.

[Supplementary Principle 4.1.1 Roles and responsibilities of the Board of Directors (1)]

• The Company requires resolution by the Board of Directors for the following matters:
• 1. Matters provided for in the Companies Act and other laws and regulations
  2. Matters provided for in the Articles of Incorporation
  3. Matters provided for in the Board of Directors Regulations

The following matters require reporting to the Board of Directors:

1. State of business execution and other matters provided for in the Companies Act and other laws and regulations
2. Other matters deemed necessary by the Board of Directors

Accordingly, matters other than the above have been delegated to management.

[Principle 4.9 Independence standards and qualification for independent Directors]

• The Company's standards for independent officers are as follows:
• 1. Those who meet the independence criteria stipulated by the Tokyo Stock Exchange
  2. Those who have excellent integrity, insight, and capabilities, as well as wide-ranging knowledge and experience and strong track record in a specialized field, with a view to incorporating diverse perspectives into the Company's Board of Directors
  3. Those who can fully understand the Group's business philosophy

[Supplementary Principle 4.10.1 Use of optional approach]

• The Company transitioned into a company with audit and supervisory committee in June 2019, and has established a Nomination and Compensation Committee, a majority of whose members are independent Outside Directors. Furthermore, the Nomination and Compensation Committee holds its meetings and deliberates on matters independent of the Board of Directors. When considering nomination and compensation of Directors, the committee considers diversity and skills of candidates by referencing the

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skill matrix for incumbent Directors, and reports its findings to the Board of Directors. Independence of committee member selection and roles of the committee are as disclosed in this report.

[Supplementary Principle 4.11.1 Preconditions for effectiveness of the Board of Directors]

• The Company stipulates in its Articles of Incorporation to have no more than 15 Directors (excluding Directors who are Members of the Audit & Supervisory Committee) and no more than five Directors who are Members of the Audit & Supervisory Committee. Having disclosed knowledge, experience, and skills of each Director in a skill matrix, the Company ensures they have expertise in current and future business domains of the Group, and endeavors to maintain diversity of its members so that discussions at meetings of the Board of Directors reflect various perspectives. When selecting Directors, the Board of Directors appropriately deliberates and makes decisions at meetings involving Outside Directors based on reports of the Nomination and Compensation Committee, in light of corporate earnings, evaluations of divisions in charge, and other factors.

[Supplementary Principle 4.11.2 Preconditions for effectiveness of the Board of Directors]

• Directors and Directors who are Members of the Audit & Supervisory Committee of the Company are required to make the necessary time to understand the Company's businesses and operations, and prepare for and attend meetings of the Board of Directors. Accordingly, if they concurrently serve as officers at other listed companies, the Company will disclose in Notices of General Meeting of Shareholders their attendance at meetings of the Board of Directors and meetings of the Audit & Supervisory Committee, as well as names of companies at which they concurrently hold positions, to determine if the number of companies concurrently serving at is appropriate.

[Supplementary Principle 4.11.3 Preconditions for effectiveness of the Board of Directors]

• With a view to enhancing effectiveness of the Board of Directors as a whole, the Company analyzes and evaluates the effectiveness such as by conducting questionnaires with all members of the Board of Directors every year. The Company believes its Board of Directors is functioning effectively, given that discussions at its meetings are always lively with suggestions from diverse perspectives, and that these opinions and suggestions are often reflected in actual programs and policies.

[Supplementary Principle 4.14.2 Director training]

• The Company provides opportunities for newly appointed Directors and Directors who are Members of the Audit & Supervisory Committee to obtain required knowledge on the Company's business, finance, organization, etc. at the time of appointment. The Company has designated certain divisions to provide the training based on a standard format. Furthermore, the Company offers additional training opportunities as needed on matters required for Directors and Directors who are Members of the Audit & Supervisory Committee to appropriately carry out their delegated duties and supervise management.

[Principle 5.1 Policy for constructive dialogue with shareholders]

• The Company makes a reasonable effort to accommodate requests for dialogue from shareholders, so that such dialogue contributes to the Company's sustained growth and improvement of its corporate value over the medium to long term. To this end, the Group Finance Department, Public Relations Office, and General Affairs Department respectively take charge of communication with institutional investors, general media, and individual investors. These three divisions work together to improve external communication. In addition, the Company holds results briefings for interested institutional investors, and opinions given at briefings are relayed to executives as needed.

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2. Capital Structure

		Foreign Shareholding Ratio		Less than 10%
[Status of Major Shareholders]	Updated
		Name / Company Name			Number of Shares			Percentage (%)
				Owned
	Nihon Create LLC	52,307,500	34.39
	The Master Trust Bank of Japan, Ltd. (Trust	9,491,000	6.24
	account)
	Kentaro Ogawa	3,170,408	2.08
	Kazumasa Ogawa	3,160,800	2.08
	Yohei Ogawa	3,160,800	2.08
	Zensho Group Employee Stock Ownership	2,880,305	1.89
	Association
	Custody Bank of Japan, Ltd. (Trust account)	1,420,500	0.93
	JP MORGAN CHASE BANK 385781	1,203,360	0.79
	STATE STREET BANK WEST CLIENT -	1,134,800	0.75
	TREATY 505234
	Nobutsugu Shimizu	1,027,530	0.68
		Controlling Shareholder (except for Parent		―
		Company)
		Parent Company		None

Supplementary Explanation

―

3. Corporate Attributes

	Listed Stock Market and Market	Section	Tokyo Stock Exchange
	Updated			Prime Market
	Fiscal Year-End		March
	Type of Business		Retail Trade
	Number of Employees (consolidated) as of the	More than 1,000
	End of the Previous Fiscal Year
	Sales (consolidated) as of the End	of the	From 100 billion yen to less than 1 trillion yen
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of the	From 100 to less than 300
	End of the Previous Fiscal Year

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